In search of NSEL stock, a money puzzle unravels

According to him, he owes the exchange less than half the sum listed against his name.

The money was said to have been brought in by Jagmohan’s co-shareholder in Mohan India, Jaishankar Srivastava.

When questioned about how they were being financed by an exchange and the risks involved, Srivastava is believed to have said: “Paise andar laa raha hoon na. Bahar thodi le ke jaa raha hoon.

“I am bringing in money. Not taking it out. Why are you worried?”

That explains the big picture: the exchange entered into different arrangements with people with medium- to -large financial standings who were fund-starved and lured them to become its members in return for easy finance.

The whole thing worked something like this.

The National Spot Exchange took warehouses on rent at different locations and issued warehousing receipts.

In search of NSEL stock, a money puzzle unravels

Extensive paperwork, including agreements with so-called members/farmers, were entered into by the exchange.

The warehouse managers so appointed by the exchange are said to have performed the functions of the exchange itself: they received stocks, certified quality and quantity of commodities, raised bills, challans, weighbridge receipts, freight receipts, etc.

A warehouse receipt would be issued in favour of the borrowing entity without entering any stock in the exchange-accredited warehouses.

These borrowers then sold these warehouse receipts on the exchange on the third day under T+2 contracts and took away the funds.

They kept the money rolling without ever having to deliver the stock.

They bought T+25 contracts and on the day the money was to be returned, they sold fresh T+2 contracts.

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Image: A man moves an advertising poster bearing the MCX-SX logo at their Exchange Square building in Mumbai. Jignesh Shah (Inset).Photographs: Vivek Prakash/Reuters

In search of NSEL stock, a money puzzle unravels

As T+25 contracts always sold at a premium with return of 14-18 per cent annually, investors kept on rolling their trades, month after month. In essence, they bought the T+2 contracts and sold the T+25 contract.

There was no reason for them to smell a rat as the exchange was regularly issuing confirmations on warehouse receipt numbers, quality certificate numbers, warehouse locations, etc.

Furthermore, the exchange was also issuing letters confirming ownership of the stock with the investor and that the exchange was the custodian of such stocks until its delivery to the buyer of the T+25 contracts.

If the investor grew suspicious, then the warehouse managers took them to a warehouse where goods were actually stored.

In search of NSEL stock, a money puzzle unravels

While the investor could cross-check his own exposure, he had no means to check if the same goods were being shown to other investors as well.

He also had no idea of the total position on the exchange for a particular stock.

Everyone was happy. Investors were promised 14-18 per cent returns on their investments, the borrowers got easy loans of 2-5 years maturity at a rate of 18-24 per cent, and the masterminds pocketed a difference of 4-10 per cent.

Income tax officials who raided the so-called warehouses and inspected the books of the 24 entities have pointed to this.

In Mohan India’s case, Srivastava and National Spot Exchange Business Development Executive Amit Mukherjee are said to have devised the entire structure of how the money would be routed and entries made in the books of both the National Spot Exchange and the so-called farmer/processor entities.

Mukherjee was one of the six officials removed by the exchange alongwith Managing Director & Chief Executive Anjani Sinha last month.

In search of NSEL stock, a money puzzle unravels

Another person named Behari Lal is said to have played a key role in managing the so-called warehouse system.

When contacted, Mukherjee says: “My own company is trying to frame me. Both investors and borrowers are adding to it. I was only doing a marketing job. But, I am being made the scapegoat now.”

According to Mukherjee, he was only marketing an investment product from the exchange, and Mohan India had availed the facility for six-seven months.

The money received by Mohan India was then moved through several entities such as Genius Promoters (Rs 124 crore or Rs 1.24 billion), Ramswarup and Sons (Rs 75 crore or Rs 750 million), Ramya Infrastructure, Anuj Traders, Shree Raghav Trading, Vishnu Trading and NekiRam Vijay Kumar. Shrivastav himself received about Rs 50 crore (Rs 500 million), according to the records accessed by investigators who are going after the money trail.

In search of NSEL stock, a money puzzle unravels

These investigators have also found several demand drafts issued by Mohan India to unknown entities.

When contacted by Business Standard, Jagmohan Garg termed the allegations of default as ‘rubbish’ and said he ‘would talk to the exchange in court.’

He declined to answer any further queries by Business Standard.

Easy money

The borrowers may have used the funds to grow their respective businesses or may have invested in other assets.

However, agencies such as the Enforcement Directorate are also investigating whether there were schemes which used the names of these shell companies as borrowers for a one-time fee of 4-8 per cent and then routed the money to the exchange’s owners.